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Gas Transportation Business Opportunities

26 October, 2022

Oil and gas business opportunities – Highlights

Argentina oil and gas resources:

♦  The country has proven large reserve of oil (worldwide 4th largest unconventional resources 27 bill bbls) and gas (worldwide 2nd largest unconventional resources with 802 tcf), divided in 3 basins: 1) Neuquén (70%), 2) San Jorge Gulf and, 3) Austral.

♦  Almost unexplored offshore reserves.

♦  Prices and demand will change favouring investments in the country as the result of the energy transition (replacement of coal power generated by natural gas) and geopolitical changes (replacing from Russian oil and gas offer).

♦  Main international oil and gas players and services providers have operations in Argentina.

♦  Potential output will exceed local demand, which, in turn, has supply priority (Law 17,319, section 6).

♦  Efficiency gained in the exploitation of unconventional oil and gas resources reaching equivalent international production costs (Permian basin).

Argentina oil and gas transportation legal system:

♦  Transportation concessions under the hydrocarbons law 17,319:

»  exploitation concessionaires are entitled to receive transportation concessions, which will be granted by national executive branch in those cases exceeding one province or 50 km or 12 inches (except if declared part of a Capture System, setting forth the bases for its tariff and service conditions to third parties),

»  those transportation facilities exceeding the limit of the exploitation concession shall be registered as transportation concessionaires while those within such limits are not obliged but are entitled to request so,

»  the term of the transportation concession will be the same of the exploitation concession, while technically possible and after satisfying
their own needs, transportation concessionaires shall transport third party hydrocarbons under non-discriminatory bases, applying the tariffs approved by the authority,

»  exploitation concessionaires may partner up into jointly develop transportation facilities as well as assign their right to receive the transportation concession to a third party which will hold it.

♦  Transportation concessions under the natural gas law (24,076):

»  other kind of gas transportation concession can be granted as public utility, in which case the hydrocarbons exploitation concession is not
required,

»  said concession is subject to the public utilities’ rules (tariff, quality, non-discrimination, etc.).

♦  Decree 892/2020 -issued by the Federal Executive Branch as with the same hierarchy as law passed by the Argentine Congress- approved Argentina’s Gas Plan 2020-2024 (a programme that promotes investment in gas production).

♦  Liquified Natural Gas (“LNG”) exportation regime:

»  The Executive Branch will allow the export of hydrocarbons or derivatives not required for the adequate satisfaction of domestic needs.

»  Such authorization is not required when the export contract establishes the supply is interruptible in case of local shortage without compensation.

»  Last year the Energy Secretariat approved a regimen for LNG exportation (Res. 706/21) which requires:

    • registration as exporter in the LNG Operators Registry,
    • demonstrate that domestic market players who may be interested in this fuel have been given the opportunity to purchase this product,
    • the Energy Secretariat may issue firm LNG export permits up to a maximum term of 20 years, after evaluating the security of domestic natural gas supply based on the characteristics of the project and the impact on the capacity of the natural gas
      transportation system that requires,
    • clarifies that the LNG export authorization will be final “without being revoked or interrupted at a later date due to the security of supply of the domestic market”, even-though it is not clear how said condition will be interpreted in case of local shortage.

♦  Decree 277/2022 -issued by the Federal Executive Branch as with the same hierarchy as law passed by the Argentine Congress- established the new Foreign Exchange Access Regime for the Incremental Production of Hydrocarbons, promoting investments in the sector.

»  Incentives:

    • covers 20% of the quarterly incremental production of oil, and 30% of the quarterly incremental production of gas,
    • and implies having access -for those volumes- to the Foreign Exchange Market (“MULC”) to pay abroad the principal and
      interests of executed loans and/or profits and dividends corresponding to closed and audited balance sheets and/or the
      repatriation of direct investments of non-residents.

♦  Strong political commitment by oil and gas provinces which own the reserves, to develop and exploit the resources in a sustainable manner.

♦  No restrictions regarding foreign investments and ownership of mineral resources.

♦  Environmental worldwide state of the art requirements through Environmental Impact Assessment before the provincial authority to obtain Environmental Impact Declaration.

Business opportunities:

♦  Gathering (associated to the development of new wells) and transport infrastructure (linking production locations with consuming areas and exporting facilities). Argentina has an extended network of natural gas transportation and distribution, with strong knowledge in its construction and operation (28,900 km of pipelines).

♦  LNG plants and export facilities. Advantages: 1) positive seasonal dynamic with Asian markets (Japan, China and Korea), 2) gas breakeven below 3U$S/MMBTU, 3) gas production incentive plan: stability and competitive prices.

O’Farrell and Oil & Gas: our team and knowledge.